How does wage stickiness contribute to the gender wage gap?

Today I am going to discuss the relationship between the gender pay gap and wage stickiness.

Wages are termed sticky when they don’t adjust to the optimal level driven by the changes in labour market conditions. The interaction between sticky wages and economic shocks helps to generate the business cycle, and also causes a lot of the most costly elements of an economic downturn – unemployment and losses in skills. 

As I have discussed in a previous post, prices as well as wages can be sticky. However, the focus here is on the inability for wages to change from a predetermined path – specifically the downward rigidity of money wages.

A strong reason why wages can be very sticky is unionisation.  Unions and employers both use size to generate a bargaining position to negotiate wages.  As part of this strategic negotiation, unions (at least in the Anglo-Saxon sense) tend to promote relatively sticky wages – and demand persistent increases in wages even when the economic cycle turns south.

But what does this have to do with wage inequality?

Note:  There are multiple models of unionisation and social assistance – Matty pointed out that the books “Varieties of Capitalism” and Chapter 13 of the Oxford handbook of the welfare state are a useful read for thinking about this.  The response of unions in Germany during the GFC and COVID show that the relationship between unions and stickiness is complex – and the assumption they are related is based on the experience of Anglo-American economies in the 1960-1980s.

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Is it time to promote working from home?

Over the past few weeks I’ve been working mostly from home as part of the COVID lockdown.  However, now with the move back to Level One I’m heading back into the office on a more full-time basis.  

In the first few days back, I have heard a lot of people from around the building talking about how they prefer different work arrangements – and I’ve heard a lot of people say that they felt more work was being done away from the office.  And yet, teams appear to be making the choice to move back to the office.  Why is this the case?

Although it may be the case that the teams stated and real preferences differ, I suspect there is something else at play – strategic complementarity.  Once we understand this concept it can become clear why we can end up in a worse equilibrium with regards to our work arrangements even when given flexi-choice, and why explicitly promoting working from home could be a “win-win”.

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What is the gig economy?

As Motu has noted, the gig economy is an emerging part of the labour market with the features of independent contracting. In the gig economy world, there is little to no cost of switching the job to another is involved. Examples of the gig economy activities include: Uber drivers, YouTube bloggers/ social influencers, independent consultants and etc. 

So how can we think about the labour market in a world where work switches towards the gig economy?

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Monopsony employers paying higher wages?!

As part of my job as a researcher I like to read about different topics – I have done work on health economics, labour economics, and more recently firm level economics.  One topic that comes up across all these fields is the idea of a monopsony buyer for different things.

Looking across this blog I’ve seen monopsony discussed in terms of the labour market and in terms of migration and monetary policy.  However, I want to focus on concentration indices (as a proxy for monopsony) and wages.

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Bleg: The role of unions

I see that Bloomberg is stating that Economists are changing their minds about unions – moving from seeing them negatively to seeing them positively.

Unions are an interesting topic, but are also inseparable from a discussion about the relative welfare state and competition policy embedded in a nation.  Nordic and German trade unions are quite different from the trade unions of the US, UK, and Australiasia – and any evaluation of an institution in this way requires a model that allows us to represent the institution relative to other institutions in the economy, the way individuals behaviour relates to that, and how the outcomes for individuals will vary.

So does anyone want to do some of that in the comments below?  I will hopefully be writing up some things on these issues over time – but as a starting point for discussion I will put up this oversimplification.  Unions help to correct issues of insufficient bargaining power for labour, but like any monopoly their existence leads to deadweight losses which hurt those outside of the unionised industry, and are unfair to capital owners in competitive markets.  Evaluating whether more unionisation is good relies on comparing the costs and benefits given in this oversimplification.

Off we go …

Why my work week should be shorter

People, who are in labour force, generally spend one third of their daily time at work. A lot of them find working five days a week quite stressful and there are various reasons for it. I often question myself how the counterfactual of my work-life balance might look like to keep me motivated at work as well as to allow me to spend time with family/friends and devote leisure to my favorite hobbies.

An option that recently popped-up in my mind was about having a four day work week with the remuneration staying unchanged. This idea has already been implemented by a kiwi company Perpetual Guardian which is trailing to raise their productivity.

Let’s consider why the four day work week could be beneficial for both employees and employers.

Employee benefit

An extra day off normally improves our work-life balance – or in other words it allows us to spend more time on leisure (potentially also reducing work-related stress). For some people the cost of leisure is very high. Particularly, this cost is high for sole parents who have scarcity of time and support to spend on their children compared to the couples. Sole parents are also more disadvantaged compared to singles, by having extra responsibilities on their dependents.

What about the transportation burden? For some people, commuting is a big challenge, especially for those who live far away from the workplace. An extra day off would cut the transportation costs and would allow to alternate commuting time with additional leisure time.  Daily long hours on transportation are an external cost placed on the employment process which has a dead-weight loss, which can be reduced by needing to travel less often.

We probably all agree that having an extra day off would improve our work-life balance regardless of our family composition or the length of commuting.

So what happens if “the four day work per week” policy is widely implemented?  Is it a fixed day, should it be up to the employee to choose, or should there be some type of random rotation introduced?

My view is that the weekdays that employees are off should be rotated among workers. If not, then a Friday becomes another Saturday. In this case, everybody has a day off, and problems with “dentist visits” or “children’s school visits” remain unsolved. Adding another Saturday/Sunday to an employee’s life is great, but the marginal improvement is much less than having the day off with rotation.

Employer benefit

At first glance, the approach of paying same wage for 32 hours a week instead of 40, seems expensive. But have we already considered the productivity increase of employees?

An earlier post on  TVHE has already shown that the productivity drops as the number of hours of work rises. A Scandinavian research also demonstrated how the six-hour work day increases productivity here.

“A year’s worth of data from the project, which compares staff at Svartedalens with a control group at a similar facility, showed that 68 nurses who worked six hour days took half as much sick time as those in the control group. And they were 2.8 times less likely to take any time off in a two-week period”.

As a result, higher productivity would at least reduce the cost – if not completely cancel it out.

Although this does raise the question “if firms can get the same output from you in 32 hours instead of 40, and thereby can reduce their costs of operating even keeping wage payments the same (due to other variable costs), then why aren’t they?”.  So do you think there are reasons why firms may be failing to do this, even if the cost or low or it is even in their own interest?

Conclusion

Often time costs us more than million dollars as the happiness cannot be quantified or bought by money. Any company caring to keep their trained specialists around might want to be ready to cover this cost.

A successful outcome of the Perpetual Guardian’s trial on four day work could encourage other companies in NZ to think about how to widely apply this policy among their employees.

I wonder what your thoughts on this topic are. Do you think shifting from five to four days work might impact the NZ economy significantly?